It was a matter of time before cannabis investment options were dangled on the JSE. So far there have been only small hits; liquor group Distell bought into cannabis-infused beer Durban Poison last year, and small nutritionals business Go Life has hinted at shifting into cannabis products.
Last week Labat, the investment company headed by former SA Rugby boss Brian van Rooyen, made a surprise trip into the weed industry by announcing plans to establish a "fully integrated cannabis business". Labat has largely battled for traction during its 25 years on the JSE, with the company taking various guises that have not really impressed investors. But Van Rooyen has never stopped mauling for deals and hopefully Labat can snag those elusive high returns from this venture.
Labat has bought 70% of seeds and genetics business Knuckle Genetics. To quote from the Sens statement (lest I be accused of making goofy puns): Knuckle "produces high-quality cannabis flower, oils and concentrates with a very high tetrahydrocannabinol content for the export market". This comes with a licence to cultivate, manufacture, supply, hold, import, export and transit cannabis in Lesotho.
In conjunction with the Knuckle deal, Labat has also acquired Pac-con Pharmaceuticals, which manufactures and packages liquids, tablets, capsules, creams and gels for various clients. The plan is for Pac-con to produce high-grade cannabidiol oils and related cannabis products for the retail and wholesale markets. Labat will stump up R4m for Knuckle, and R10m for Pac-con through the issue of 5-million new Labat shares at a premium price of 100c a share and a R5m cash payment.
I have snaffled a toke(n) number of Labat shares … just in case things get, shall we say, ‘interesting’
Labat says the big plan is to create a platform for small-scale farmers to take advantage of the industrial component of the cannabis business, and there is a plan to set up a facility for a range of industrial hemp products. Labat has identified 58ha of land in the Eastern Cape and is in negotiations with other parties for additional land. It seems the cannabis angle will be used to rebrand Labat, which also owns a fuel and logistics business as well as microchip maker SAMES.
Perhaps significantly, Labat has called off prolonged negotiations around potential deals with Senna Motors and Centenary Tanker Hire — but the company indicates that talks are ongoing regarding other acquisitions.
Specifically, additional cannabis licences (possibly a facility with a different extraction process and different market segments) as well as a video-linked tracking system for logistics and a deal to expand the footprint of the logistics and fuel distribution segment.
Labat’s history would dictate that investors cautiously assess the cannabis thrust, which clearly will need to grow some way before reaching critical mass. For the record, I have snaffled a toke(n) number of Labat shares … just in case things get, shall we say, "interesting".
Store of value
Last week Metrofile, the document storage specialist, sparked its share price with a cautionary that it had been approached by a "third party" to buy the entire company.
My sources tell me that it’s an American outfit, which might raise hopes of an attractive exit price. I doubt existing Metrofile shareholders would accept anything under 225c a share, and I would not be surprised if 250c a share was bandied about. Metrofile has had a tough time of late, but it is cash-generative and occupies a strong position in a sustainable niche.
Filled to the brim
As a Brimstone shareholder, I’d like to see it pursue an aggressive share buyback to take advantage of the crazy discount the share price offers on its intrinsic value. With the Clover exit sorted, Brimstone could well start scooping up its own shares, unless there is a need to retain capital for a significant new investment. A situation worth watching closely.
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